Alanpuri Trading

Game On: RUT Short

2011-11-17T22:01:00.000-08:00

In my world of Technicals there are few signals I like better then a failed bottoming tail on an uptrending 20 Moving Average. (or failed topping tail at a downtrending 20ma)

In these volatile markets the best entries are often "Failures of Buy Signals" rather then "Traditional Sell Signals" that offer the best risk/reward.

Looking at this chart as a whole, it's bearish (lower low, lower high), but the last rally back to retest June's swing lows had the bulls frothing for another leg up that just got whacked today with the close of today's candle below Tuesday's bottoming tail at the 20ma. Yesterday afternoon we saw a classic bull trap the last hour of trade.

This is the same set-up (Failure of a Buy Signal at the 20ma) that started the 200+pt romp in August.

At a minimum this is a sign of weakness, at it's best this is the start of a new move to retest the 600 area. (Notice the huge void to fill down to 600 with little help of support to the left side, price will have a hard time catching on that steep edge)

A mirror move of the Aug-Oct move would be down in the 550 area.

I'm staying bearish until a solid close above 740.

Russell 2000 Futures (TF) Daily Chart, November 17, 2011

Disclaimer:
The following is a disclaimer to advise the reader or viewer of any charts, trade set-ups or comments from this blog by Alanpuri Trading. The information and opinions expressed here are for educational purposes only and are not intended as investment advice or an offer or solicitation for the purchase or sale of any financial instrument.

Trading the market involves inherent risks and investors can lose money investing in the markets. Individuals trading in the market are encouraged to seek professional advice, before investing. Those that do trade must do their own due diligence and research to determine whether their investment choices are appropriate for their investment needs. The individual reading these comments and opinions by Alanpuri Trading or its authors are fully responsible for their own trading decisions. Alanpuri Trading and its authors will accept no responsibility for any trading losses of any kind.

When Money Dies by Adam Fergusson (1975)

2011-11-04T15:37:00.000-07:00

Some Observations on Fergusson's Book and Current Conditions:

I finished the 1975 book When Money Dies by Adam Fergusson yesterday. The book is about the hyperinflation period in Weimar Germany after WWI. It does a great job of documenting the events that lead up to the mess and the continued ignorance of currency policy that lead up to the eventual and complete collapse of the German Mark in 1924.

The book give a great account of the affects these events had on the common German citizen during the period.

Although our current situation in the US is painted with a different brush, there are some glaring similarities of ignorance seen in the fundamental mistakes Germany made in the 1920s and those we can see being made today in America.

One of Germany’s first mistakes was to enter a War and neglect to establish a tax to pay for it (England at the same time did establish a war tax). That was one of the first major expenses to create their huge deficit, the second were the war reparations created with the Treaty of Versailles.

In the U.S., we similarly have entered several Wars worldwide (Iraq, Afghanistan) and rather then add a tax to pay for them, we’ve actually been lowering taxes over the past decade. This of course runs counter to logic and has created enormous costs and increased our deficit substantially over the last 10 years.

Although it’s hard to believe, those in charge of the currency in Germany had no idea that their policy of money printing had anything to do with the falling exchange rate, inflation and hyperinflation. They had seemingly smart people running the show, but they were completely blind to what we can now see as the obvious cause of their hyperinflation and eventual complete collapse of their currency.

In the U.S. today we are seeing a similar situation regarding the weakening of our currency. For many of us it is obvious that everyday our deficit gets larger (increased spending and interest expense), and with every bailout or stimulus package creating by with additionally liquidity (diluting the value of our outstanding dollars) we are reducing the worldwide purchasing power our U.S. currency. As with Germany, the first stages are slow and most are unaware that the foundation of our economy being eroded and the deterioration is gaining momentum. This is invisible to most because of the costly Band-aids being applied by the Fed and the encouraging rhetoric from the current administration.

To the Feds defense, they are only following their dual mandate of price stability and full employment, but if we simply look at the results, they have failed. I would argue that the Fed in the long run needs to be disbanded and in it's place allow the new monetary system 2.0 and the unmanipulated free market to stabilize prices. (This will likely only be possible after a complete collapse of our current system as everything will then be allowed to reset). The hope of monetary system 2.0 is that it will be absent of Fed manipulations of interest rates and money supply that lead to the euphoria of artificial prosperity and disasters that follow. (our current system is like a 1977 turntable with four Allman Brother albums in world capable of a 64GB iPad loaded with 30 years of your favorite songs). We can do better.

As for the encouraging rhetoric from the White House, they too have a mandate of keeping the public calm. One could only wish that someone up there would finally have the courage to tell the truth, but in politics that is highly unlikely so we're likely left to dealing with an economic collapse to teach us our lesson just as the Germans did in 1924.

In Germany the inflation they saw most prominently was in the daily food staples of bread, milk, butter, eggs, meat, etc. As the printing presses of higher denomination Marks increased (1922 to 1924) and hyperinflation ensued, these staples continued to rise sharply.

In the U.S. I would argue that we may see an entirely different scenario. First of all, it’s no secret that the our government continues to tweak the equations they use to calculate inflation, therefore the inflation numbers of today are apples vs. oranges from the inflation rate measurements 20 years ago. This continues the delusion of a stable economy.

Despite government reports, we are at a much higher rate of inflation then reported. One needs only needs to look at a grocery bill to see the increases we’ve had on food staples. (On a side note: the area we have not seen increases are in the loss-leader fast food items. This is made possible by the subsidies to corn farmers which is yet another cost shouldered by the American public. The fast food in turn creates more obesity and heart disease which directly increases our health care costs. Again, the long term negative impacts to our U.S. dollar by these actions are invisible to the majority of Americans. I realize it’s more complex than the statement above, but the problem of subsidizing foods that promote unhealthy eating habits has a much greater long term negative effect than people realize, especially since healthcare costs (medicare and medicade) are the largest slice of our national budget).

I would argue that the majority of the inflation we are seeing in America today is already priced in to the artificial prosperity still embedded in real estate across our country and secondarily in overvalued US equities. In other words, when real estate prices got pumped up from 1994 to 2007 with the help of artificially low interest rates and an abundance of speculative buying, the positive equity created will be the most susceptible to loss in the next major market shock.

If we were to look for the weakest link of our economy today I would point to home equity and the buying power of the U.S. Dollar. On paper it would appear for the last few years that our U.S. Dollar’s value would be in a tailspin, but world circumstances (equally weak foreign currencies) and the Government’s panic interventions have
temporarily staved off a free fall of the U.S. Dollar and a return to the 2008 lows in US equity values.

On paper this makes Bernake appear to have staved off the crisis, but the fundamental and most important underlying numbers continue to get worse everyday. The ONLY way to reverse the trend is to drastically reduce spending and to increase revenues enough to create sustainable budget surpluses over a period long enough to balance the budget, and unfortunately I see no evidence of that happening even for a short period of time. I don’t even see a “plan” for increased revenues. The fundamentals of our real economy have been weak for decades. Remember we have not had a Trade Surplus since 1975.

This is where I think economist get themselves in trouble.

There are far too many positive speculative assumptions being made by economists right now, all of them lacking any form of tangible evidence. Their continued focus on short term indicators of GDP and job growth will continue to distract them from the real problem which is a country who’s business leaders have completely lost sight of goals based on long term sustainability. This may very well take a decade or two wake everyone up.

Generally Accepted Accounting Practices:

In the most simple of terms, Government finances are no different from Business finances in the sense that they are both governed by the laws of elementary mathematics.

Where they differ and the reason we have seen three Sovereigns fall into crisis (Iceland, Ireland, Greece - they will) in the last few years is that they are under the delusion that they operate on a different plane where math rules don't apply. The reality is that they do. They are governed by the same elementary math rules that private businesses, individuals and 2nd graders use.

We need only look as far back as Iceland and Ireland in 2008 to see that elementary math will always win over the rhetoric of short sighted Economists.

The cry I am hearing from economists is that this is no time to raise taxes or cut spending as it would create a double dip recession. -- This is the type of comment you will continue to hear from the men who has never had to deal with the reality of “Generally Accepted Accounting Practices.” In the GAAP world budgets must be balanced or the entity will cease to exist. Most economist have never had any skin in the game and in most cases have not been personally exposed to an actual business owners balance sheet. Give me any responsible, successful (honest) businessman and the rhetoric would be quite different. When faced with an ugly balance sheet and the inability to borrow (in the real world a company with a bad balance sheet and declining revenues would not be able to borrow more), they will do two things. First, they will cut expenses no matter how painful, second, they will figure out a way to raise revenues. It’s that simple. If they are unable to do both then it’s likely the business will eventually fail. It is an accountant’s and banker’s job to make those types of observations and assessments and create a feedback loop to the business owner.

This type of feedback loop and the two actions required for survival are not present in Government and we can see very clearly the results reflected in the balance sheet.

This brings us back to the weakest link theory.

Despite the first stage of the real estate crash in 2007-2008, the underling problems with real estate debt have yet to be addressed in a manor that would give any hope to keeping real estate prices propped up barring a substantial reset of the loan values. Although the risk of the majority of mortgage debt was transferred from the private sector (Fannie Mae, Freddie Mac) to the public sector (the American Taxpayer), the true value of current real estate will not be apparent until the Government takes the losses on the bad debt and all of the foreclosure inventory is liquidated. Looking at this objectively from the outside looking in, this will likely be the weakest link moving forward in the next 5 years and the contagion it is likely to cause will set a whole new batch of problems in motion.

Yes, history does repeat itself, but more often then not, the way it plays out is vastly different from prior experiences of the same type of event. However, when the fundamental problems are present the ultimate outcome is generally easy to assess.
We are diluting our currency differently then the Germans in the Weimar Republic, but elementary math has a funny way of working it’s magic of truth in the long run.

One must keep in mind the time frame on these large Sovereign events as in many cases it has taken decades of neglect and mismanagement to reach a crisis point and it can take another decade or so to see the ultimate result of that mismanagement.

The positive take away from Fergusson’s book is that given time, a country like Germany ,who even had to recover from the scars of Hitler, can reset and rebuild a strong foundation provided they learn from their past mistakes. Germany’s current status in Europe and their balance sheet relative to their European peers show they have learned a lesson or two in the last ninty years.

I read this book during the same period (Sept-Oct 2011) that Merkel (Chancellor of Germany) was in the spotlight working on the Greek Rescue package. It was an interesting irony to be reading the history of a 1920’s Germany of delusion only to put to book down and read the latest daily news on the Greek rescue package progress which relied primarily on Germany’s financial support.

I found the first quarter of the book enticing, the middle a chore and the last quarter wonderfully entertaining. I felt it very important that I read this one cover to cover as this subject of gross monetary mismanagement is to me the 800 lb. gorilla in the U.S. as well as every other artificially propped Sovereigns right now. I still think U.S. real estate and equities are grossly overvalued. We have seen them tumble one by one (Iceland, Greece, Ireland), but the underlying numbers tell us it’s not over yet, and to the prudent risk manager it means staying focused on the fundamental numbers. Not the short term numbers that the market looks at, but the trade balance (hasn’t been positive since 1975), our increasing expenditures and our decreasing revenues.

When all else fails, look at the balance sheet to get the primary story and then ask yourself what opportunities you see for growth in the next 5 to 10 years.

When I look at the U.S. I see a country without a strategy. I see a automotive industry that had four decades and billions of dollars to be first out with an electric car and failed. I see and energy industry that had four decades and billions of dollars to develop and market alternative fuels and failed.

I see a food industry that moved from producing healthy foods (fruits and eatable vegetables) to a corn producer of which 80% of the corn goes to feeding livestock, poultry and fish.

Like it or not, soft drinks, fast food, dairy products and meat products promote obesity, heart disease and cancer (see The China Study). These diseases continue to raise our health care costs exponentially. This trend of America’s poor eating habits is likely to continue and until this trend reverses our healthcare cost will to continue to rise regardless of which Government program is tweaked, implemented or abandoned.

For the savvy trader there will be both short term and long term opportunities, but with the increased volatility it will require a high degree of skill and discipline to manage the large swings and intraday chaos.

The Good News:

In the last couple of decades Steve Jobs and Apple revolutionized the computer industry, the music industry, the movie industry and the phone industry, among others.

That same type of revolution is available in the Health Industry, the Transportation Industry, The Utilities Industry, the Energy Industry and the Financial Industry. Once business leaders are able to focus and execute strategies based on customer experience, sustainability and continued innovation we will finally have a strategy compatible with real economic growth as opposed to “artificial” growth.

Shut up, Listen and Learn. Reprogramming Your Subconscious to OBEY Rules.

2011-07-09T23:22:00.000-07:00

Intraday Futures Trading

When a trader experiences difficulty making decisions that are clearly defined in the trading rules, it is often because there are competing neural circuits that are often trying too hard to protect the “self” from “being wrong,” and thus suffering a lose by exiting a trade too soon are missing an entry after hesitating, only to see the trade move quickly in ones favor.

What traders need to remind themselves, is that a proven system has already taken EVERYTHING into consideration and that EVERY system has losing trades. Often it is the zealous subconscious that will try to OVER-PROTECT the individual because it forgets that “losing trades” are just part of winning system. Instead the subconscious has been programmed to treat every trade as life or death and therefore OVER-THINKS and because it becomes emotional cannot see things objectively.

To correct this misunderstanding of the subconscious a trader needs to reprogram his/her subconscious to focus ENTIRELY ON FOLLOWING RULES – (instead of worrying about winning or losing)

Rather then fearing that the trade will lose, or that a current winning trade will reverse soon, THE FEAR MUST BE TO “NOT BREAK ANY RULES.”

Worded in the positive, SUCCESS is defined as FOLLOWING RULES EXACTLY. FAILURE is defined as NOT FOLLOWING RULES.

Train the subconscious to follow rules by illustrating how the system works and by simulating a string of trades that ultimately lead to a large, profitable P/L statement.

Providers like NinjaTrader, TradeStation and others have very good simulation abilities that will allow one to re-trade previous trading days exactly as they actually happened.

If there are certain valid set-ups you’re having problems with you can re-trade that set-up OVER and OVER and OVER again until you build up a reflex to enter as soon as it appears. This is reprogramming you subconscious and eliminating the competing neural circuit that was previously present and caused hesitation.

Similar repetition can also be used when working to improve profitable exits. Clear rules are the first key, but practicing them with simulation is key for calming and retraining your subconscious from the temptation of exiting too early. Practice. Practice. Practice.

It is our job not only as traders, but as humans to learn how to control our subconscious so we can remove limiting beliefs and reach our full potential.

I was watching one of my favorite dark comedies the other night, and there was some dialog I thought was very applicable to how a trader might want to talk to his/her subconscious after having some trouble following RULES.

So here it is in text – The conscious mind reprimanding the subconscious mind and reminding it to JUST follow rules.

Shut up, Listen and Learn.

You have no brain.
No judgment calls necessary.
What you think means nothing.
What you feel means nothing.
You are here for me.
It is your responsibility now to make sure I get what I want.
Am I clear?
Good!
I’m not trying to be cruel.
I’m just trying to help.
Because if you do this job right – you listen and learn, then you’re going to be able to do anything you want.
You can have anything you want. --

The end result, as the conscious promises, is that “All can be yours – Everything you want,” and if we as traders DO follow our rules there is a happy financial ending. However, the real trick is to use this strategy in every part of your life you want to improve. It does work.

Click Here to watch Kevin Spacey and Frank Whaley in a clip from Swimming with Sharks (1994). Note: “Sweet and Low” is following rules. “Equal” is breaking rules.

Trading Definition

2011-07-09T14:57:00.000-07:00

My favorite definition of trading is from Paul Lange:

Trading is "Using technical analysis to find a moment in time when the odds are in your favor. Then trading becomes a matter of your entry and management."

In other words, it is having the KNOWLEDGE to know when the odds are in your favor, having the PATIENCE to wait for that moment, and then having the DISCIPLINE to handle the trade properly when it goes in your favor and properly when it goes against you.

What many new traders don't understand (me included) is that it takes years of experience to be able to edit out the noise so that those points of entry become so BOLD that it's like seeing entry signals in color when everything else is black and white. There are plenty of "gray" entries that sometimes work, but more often then not I pass on those and wait patiently for the "Color" signals. When "Color" signals appear I KNOW that the odds are in my favor.

Improved performance will likely be found by understanding the above definition and putting in thousands of hours practicing. Yes, thousands of hours.

The Laws of Nature, Managing Risk, Common Sense and Infinite Patience

2011-05-10T21:19:00.000-07:00

It’s been quite a while since I’ve made a post to this blog.

In July of 2010 my last post was a series of questions I asked myself to get a sense of which way I wanted to position myself in the market given the historically weak US economy. My focus has been and continues to be the RUT for swing and longer term positions and the TF (E-mini Russell 200 Future) for intraday trading. I enjoy this Index because of it’s high volatility and the relatively high premiums on the RUT options.

For the last 18 months, 95% of my trading has been intra-day TF futures as I did not understand what the daily and weekly charts were doing. If I don't understand it, I don't trade it. Moving down to a shorter time frame in my case gave me better clarity and the ability to better manage risk.

After answering those questions I decided that I would continue to wait, watch the charts and wait for my signals to give me an entry signal short. After the RUT found support in the 600 area in late Aug 2010, it has been grinding higher ever since. Thus, no entries short yet. I have put on some very small positions short in some over extended areas after some topping tails, but nothing significant yet as the charts are still uber-bullish.

Tomorrow I’ll put up some charts and talk about some interesting observations, but today I want to take a few steps back from the technical analysis perspective and share some of the real world observations I’ve had over the past 2 years and how they’ve affected the way I see the markets now.

The Laws of Nature:
Paraphrasing the Hellen Keller quote, “Security does not exist in nature.”

As I look back at world events of the last couple of years, I have observed that not only does security not exist in nature, but it’s “non-existence” is more a law of nature. Closely related is the “Law of Constant Change.”

In 2008 the US economy was on the brink of collapse and was postponed only by a last minute infusion from the Fed.

In 2008 Fannie Mae needed a bailout by the US Government

In 2008 Freddie Mac needed a bailout by the US Government

In 2008 AIG needed a bailout by the US Government

In 2008 GM needed a bailout by the US government

In 2008 the US stock market crashed.

In 2008 the US housing market crashed.

In 2010 the Haiti Earthquake cost loss of life and property damage on a grand scale.

In 2010 the BP oil spill devastated the gulf region.

In 2011 the Japan Earthquake, Tsunami and Nuclear disaster has devastated the region.

In 2011 the US Midwest was riddled with Storms and Tornadoes costing loss of life and property large scale.

In 2011 the US Mississippi River Floods costs loss of life and property on a grand scale.

Natural Disasters vs. Man-Made Disasters
Of those major events listed, they can be split into the two main categories of Nature Disasters and Man Made Disasters.

There is no security in nature, but fortunately man is equip with the ability to think, reason and apply risk management techniques to increase the odds of his survival. This could also be called “Common Sense.”

In the case of the man made disasters above, ALL were avoidable, but occurred anyway because those in charge ignored common sense, and did not manage risk.

In the case of the natural disasters, in many cases the historical data was not available to put into place the necessary risk management techniques to avoid the dangers. The flooding along the Mississippi for example hasn’t been this bad for over 80 years in some cases, so the latest generations that built in those areas were unaware of the potential dangers. That being said, there is new data as of today that signal very clearly that it is NOT SAFE to rebuild in those areas. Should that new data be ignored they are likely to suffer the same fate at sometime in the future. A better alternative is to build in a non-flood zone.

We will never be able to avoid danger completely, but we must be aware of those that pack the highest degree of punishment so we can manage the risk of those events. Even with all those risk managed, we could step outside tomorrow and be hit by a falling piece of the space station, that’s part of the risk of just being a human and walking around. A good life is the balance of being a good risk manager without becoming overly paranoid.

Multiple Black Swans
One of the reason I wanted to mention all of those events is because just 5 years ago the odds of those events happening would have probably been less then 1%, most certainly in the case of the man-made disasters. In other words, they were all “Black Swan” events. Nevertheless, because they didn't plan on the events, they caught everyone completely off guard the degree of punishment was EXTREMELY HIGH.

More Black Swans Ahead:
Moving forward and applying the Law of Constant Change, there is a very high probability that we will again experience several more man-made Black Swan events in the next few years. I see this probability as extremely high because again there is an absence of common sense and risk management at the FED were the failure of their plan will inflect great punishment and trigger a domino effect of more Black Swan events. As we see above, looking at our man-made disasters, when risk management is ignored the probabilities are substantially increased for a failure of their desired result. While the FED hopes for long term stability, their actions will surely produce the exact opposite result because they have lost complete sight of true risk management just as Greenspan did.

Infinite Patience:
I was fortunate to learn early in my trading career that patience is one of the cornerstones of trading discipline. Tomorrow I’ll talk more about patience and risk management as it applies to setting up some longer term positions with the current market conditions and VIX levels.

Disclaimer:
The following is a disclaimer to advise the reader or viewer of any charts, trade set-ups or comments from this blog by Alanpuri Trading. The information and opinions expressed here are for educational purposes only and are not intended as investment advice or an offer or solicitation for the purchase or sale of any financial instrument.

Trading the market involves inherent risks and investors can lose money investing in the markets. Individuals trading in the market are encouraged to seek professional advice, before investing. Those that do trade must do their own due diligence and research to determine whether their investment choices are appropriate for their investment needs. The individual reading these comments and opinions by Alanpuri Trading or its authors are fully responsible for their own trading decisions. Alanpuri Trading and its authors will accept no responsibility for any trading losses of any kind.

Questions Moving Forward

2010-07-18T22:35:00.001-07:00

Beyond the technical moves that have been large and volatile in the last 24 months, there a few questions I wanted to pose as we look forward at the next 12 months. These are in no particular order or no particular importance, but are just a collection of questions that help me figure out which side of the fence I want to be setting up my longer term positions. Some do have a correct and finite answer, but others will not be answered until everything plays out over time. Have fun.

- If 70% of the country is actually living paycheck to paycheck (I have heard that quoted but have no idea if it's true), then what happens to consumption if there's even a short term interrupt (2-6 months) in our financial system?

- What would happen to retail sales?

- Since 70% of our economy is based on consumption, what happens to the economy if there is an issue with our financial system?

- Does it seem like market participants have learned they're lesson yet about bubbles?

- Did you know that historically even the top economic minds of their time had no idea they were in a financial bubble?

- Do you really think that the real estate market has bottomed after a 3 year pull back and a 9.5% unemployment environment? Does that really make sense?

- Did you know that the market generally will make a mirror move that's at least as big as it's first momentum move after and extended pull back?

- What do you think is happening with all the pre-foreclosure houses sitting in limbo right now? I'm talking about the ones where the bank shows a $450,000 loan on their books but the house is only worth $240,000.

- For the "Strategic Defaulter" living in the house above, lets see how much extra disposable income they've had if they haven't paid their mortgage in 2 years, but the bank hasn't kicked them out yet. Lets say that their monthly payment is $2250. x 24 and there's an additional $54,000 that family had available to consume and artificially inflate the retail numbers over the last 24 months.

- How many strategic defaulters do you think there are in this country?

- What do you think is going to happen to their spending habits when they actually have to start paying rent or paying a mortgage again?

- What do you think will happen when the banks actually have to realize that $200,000+ loss on that home loan? Multiply that by over a million + houses that are likely to foreclose this year.

- Where is the government going to generate tax revenue when retail sales are down and less of the population is working and less are consuming?

- What do you think happens to the value of the US dollar every time we take on more debt by selling more bonds? (It's an easy math equation, it gets deluted and loses value. There is no other correct answer)

- What will happen to our US debt when interest rates go up? (just like on your credit cards, our monthly payment is going to go up)

- What is the current Fed rate? (0 to 0.25%)

- How much further can the Fed cut rates to stimulate the economy?

- What affect do you think our country's addiction to consumption will play in the next 12 months? What if they don't have access to cash or credit?

- Do you think having citizens addicted to consumption is good for a healthy economy?

- Do your answers to the questions above give you confidence in decisions being made by our country's top economic minds?

- Do you think that there are opportunities to make substantial trading profits in the current environment?

RUT Hourly

2009-05-18T22:30:00.000-07:00

A late afternoon gap fill on the hourly today, lots of bulls out to play.

That created a straight move up in the afternoon that will have a hard time supporting if the price decides to retrace tomorrow.

The hourly 200MA was strong support and price closed back above the 20MA on the daily. Tomorrow will be a fun one.

RUT Hourly Chart:

RUT Hourly

2009-05-17T22:34:00.000-07:00

Expiry Friday found the RUT holding on the support of the hourly 200MA.

This will be a key area to watch on Monday to see if it can hold again.

RUT Hourly Chart:

RUT: Ho Hum

2009-05-05T20:42:00.000-07:00

Here's a 5 year weekly chart that will put things in perspective.

Just another 350 points to go until it's back to the highs. Maybe it will make the entire climb back up without a pullback. (With nine weeks straight up without a pull back, the probabilities for a pull back start to stack up). But, no evidence of a reversal yet. It's still cranking.

RUT Weekly Chart:

RUT: Still Moving Up

2009-05-04T13:21:00.001-07:00

The RUT put in another uber-bullish day closing up at 506.82.

Charts confirm that the short term trend is up. Until the moving averages start pointing down there's not much else to say.

RUT Daily Chart:

RUT: Hello 38.2%

2009-05-03T11:58:00.000-07:00

Well it took 2 months, but Thursday's close got to within 45 cents of the 38.2% fib level after shooting up with nothing more then 1 and 2 day pullbacks along the way.

The price is still holding up nicely above the uptrending 8MA and is now only about 40 points away from the overhead-downtrending 200MA. This 200MA seems to be acting as a magnet now as often does.

The move is still strong as long as it continues to close above the 8MA. A break of the 8MA and then we'll have to watch the see how it reacts to the 20MA.

RUT Daily Chart:

SPX Weekly: Not Impressed

2009-04-30T19:35:00.000-07:00

The SPX has been rising week after week in a bear market rally, but if you look at the 2 year weekly chart with the fibonacci levels you can see that it's still in the bottom 25% of the move that started in October of 2007.

A closer look shows that this move so far has been nothing more then a retrace of the brutal 4 week fall the market had in February and it took 2 months to do it.

While this move has helped to fuel the media that the market is recovering, the chart paints a pictures that's fair from showing any type of recover. Recover for me will be once the 20 MA on the weekly is pointing up and supporting. The 20MA is flat now which will likely create some choppy action the next few months and from there we'll just have to see where that 20MA decides to point our whether we get a long period of chop in this area.

SPX Weekly Chart:

RUT Hourly: Head and Shoulders Pattern Forming

2009-04-21T13:24:00.000-07:00

The RUT is now working on building it's 9th leg of this rally and reached a resistance level today equal to the 470 area where a left shoulder was formed on the hourly charts.

The Daily Chart still looks VERY bullish as it bounced nicely off the uptrending 20MA and closed above the 50% level of yesterday's red daily bar.

The question now will be whether or not it has the strength to create yet another high to complete the 9th leg of this rally. One thing to keep in mind is that with this past years volatility, the market has been "over doing it" in each direction. Just when you think it can't go any further in one direction... it keeps on going. We saw this on the way down when it continued to ignore support levels over and over again.

Now that the market is retracing back up we're seeing some similar behavior. Therefore it's probably in your best interest to keep your positions sizes small and your time frame long enough to be right.

There is a high probability that we get a pull back on the RUT, but after today's price action there is no evidence yet on the daily chart to suggest that. It did briefly crack below the upward trendline yesterday, but marched back above it today and managed to get itself above the 8MA on the daily chart as well. Still bullish.

Just wanted to point out a possible head and shoulders pattern developing on the hour chart. It will need to close below 450 to break the neckline, and if the pattern completes the target would be 420. As you can see from the chart, the last pattern that confirmed was just the start of a larger move down.

RUT Hourly Chart:

RUT Daily Chart:

RUT: Nothing But Up!

2009-04-16T17:22:00.000-07:00

The RUT created it's 7th consecutive high on the daily charts. Each previous pull back it was met with more and more aggressive buying.

This is the tricky part of trading in a bear market. Despite continued dismal data on current economic conditions the market has no problem completely ignoring it and moving higher and higher in the face of what seems logical. (Seems logical to fall right?)

To make consistent profits we need to trade what the charts are doing and not what we think they will do. Although there was some good resistance at 430, it didn't hold and we hit an intraday high of 476 today. This is where the MAs (Moving Averages) can really help to tell us what's really going on. If the 8MA and 20MA are pointing up, then that's what direction the market is heading. When a move is cooling off it will start to level off, but if it's pointing in one direction the probabilities are to trade in that direction.

An up trend can be characterized as strong when the price is staying above the 8MA.

It's at another area of resistance, but we'll have to see how it reacts tomorrow.

RUT Daily Chart:

VIX: Chart Shows No Worries Here...

2009-04-09T21:46:00.000-07:00

According to the VIX chart the recession is over, rising unemployment is not an issue and sub-prime mess, AIG situation, continuing bank failures and Korean missles are no worries for the good ol' stock market.

The "Fear" Index closed below 37.50 for the first time since it floated above 37.50 in September of last year. Now, is there really no more fear in the markets, or should we learn a little something from this chart and look at what it's really telling us?
It's either telling us that all the doom and gloom is already baked into the prices which will allow the market to float up regardless of the dreary economic data OR that this has been another bout of irrationally exuberance (greed) jumping on a train that's about to smack into a wall.

The next few weeks will likely give us our answer, but in either case it's good to see that GREED is alive and well again in the markets because where there is greed, fear is just around the corner.

One thing that I constantly remind myself is that the economy and the stock market are often two very independent and illogical beasts that trade lock-step 50% of the time and opposite 50% of the time. The problem as traders is that no one sends out an memo to tell us which days, weeks and months they're going to be.

The most important thing we can gleam from that understanding is that there will be spurts of time where the market trends in either direction and that we are best to make sure we're on the right side of the trades regardless of what the news is saying.

$VIX: S&P 500 Volatility Index Weekly Chart

RUT: 5 Weeks Up, Bear Flag?

2009-04-09T21:21:00.000-07:00

The RUT did put a string of 5 straight weeks of gains which is something it hasn't done since July of last year when it put together a six week rally that ended up being the current 52 week high before the market collapsed. That 6 week string turned out to be the mother of all bear flags as it dropped 50% from 750 down to 370 in the following 4 months.

This has been a nice relief rally and it may even continue for another week or two (I doubt it), but in the context of the weekly chart there is a strong possibility this is a bear flag just like the others that have all retraced 100%+ of those moves.

On the weekly chart it shows lower highs and lower lows. We'll keep an eye out on this rally, but so far it's another lower high which still supports the intermediate downtrend. I do respect that the current short-term uptrend, and until it breaks trend I am still short term bullish. Next weeks closing weekly bar will give us another hint as to where this chart may be headed, but notice what all the other bullish rallies set up to really be... nasty bear flags.

In a bear market, where there are lots of "white bars," there are generally some "big-ass red bars" ready to follow. (See chart for evidence)

Trade safe.

RUT Weekly Chart:

RUT: Hourly

2009-04-07T13:24:00.000-07:00

The RUT broke 440 and grinded down to the 330 area, but still leaving some of the gap to be filled on the hourly chart for tomorrow.

A pull back is in progress and there should be some support at 429, but with the uptrendline now broken it's a tenative on whether it can hold or if it continues the move
down.

RUT Hourly Chart:

RUT: Uneventful Day, But Still Holding the Up Trend

2009-04-06T21:47:00.000-07:00

The RUT session today created a small red body on the daily charts today, but is still holding the uptrend.

The hourly chart is looking a little weak, but it's been full of upside surprises the past few weeks so we'll just have to see what it has in store tomorrow.

A break below 440 will be a straight shot down to 430, so keep you eyes open for that one. It tested that area five times today and held. The sixth may not be so lucky.

RUT Daily Chart:

SPX: 23.8% Fib, Don't Get Too Excited Yet

2009-04-02T19:39:00.000-07:00

It's been quite a rally the past 4 weeks, but when we pull out to look at the bigger picture on the daily charts, the SPX still hasn't even made it back up to a 23.8% retracement of the big move down yet. That means it's still in the bottom 25% of the chart which still must be viewed as weak.

The short term trend is up and we have to respect that, but also realize the intermediate trend is still down and there is a lot of overhead resistance ahead. If the market can hold up here it may be a great area to consolidate again if it can hold above 800.

SPX Daily Chart:

RUT: Consolidation

2009-04-01T17:06:00.000-07:00

The Russell bounced hard off the 410 support area this morning and closed near the highs at 429.16.

The 432.50 area will be in focus tomorrow, as that's the resistance area it will need to clear and hold in order to give the bulls control. A break below 410 would had it back to the bears.

Head and Shoulders Pattern still forming but no confirmation yet.

RUT Hourly Chart:

RUT: Hourly Forming Head & Shoulders

2009-03-31T13:09:00.000-07:00

The RUT bounced on Tuesday into resistance to start forming a Head and Shoulders Pattern on the Hourly Chart (Bearish). In order to confirm this pattern it will need to close and trade below 410. The downside target to complete the pattern would be 375.

So far the RUT did hold an equal low on the hourly chart and put in a lower high. Tomorrow we'll just have to see if the it can move up above the 432.50 area and hold it.

Some consolidation going on here, and it still has a hint of bullishness since it did close higher today. I'll be watching the 410 area and the 432.50 as my guides, a break below 410 or above 432.50 will be the next key breaks for me.

RUT Hourly Chart:

RUT: Lower High Forming

2009-03-30T15:31:00.000-07:00

A lower high is forming on the daily charts to go with the lower low the RUT put in about 4 weeks ago. From a technical standpoint it confirms that the intermediate downtrend is still very much intact.

I'll be watching the price action carefully the next few days to see how the price reacts to the 20MA near the 400 area. If it can hold above 400 then it may chop between 400 and 470 for a while. As you can see that's been a consolidation area for the last few months.

RUT Daily Chart:

RUT: Still Watching the Hourly

2009-03-29T21:29:00.000-07:00

The RUT did pull back to the 430 area on Friday and at the time of this posting the e-mini futures were down at 421.

On the hourly chart I also put up some fib levels to give us some pull back targets. The 23.6% is right at the 421 area so it may bounce here on Monday, if it continues to pull back then the 38.2% may support around 406, below that is the 50% at 394.

After 5 legs straight up I'm now preparing for a couple different scenarios.

Scenario One: Two legs down that would support on the 38.3% or 50% fib before moving back up to retest 430 area.

Scenario Two: One leg down and then a quick retest of the 435 area that would then form a Head and Shoulders Pattern (bearish pattern) which, if it confirmed, would have a downside target of about 385.

Scenario Three: One leg down that would support at 415 or higher and continue the move up to retest the 445 area and possibly form a double top.

Monday's close will give me the next puzzle pieces and I'll re-evaluate from there.

RUT Hourly Chart:

RUT: Looking at the Hourly

2009-03-26T21:04:00.000-07:00

The RUT is now on it's fifth leg and is getting extremely over-extended from the 50MA on the 60 min chart.

The trend is still up and there are still no signs of a reversal so if the short term trend is still moving up then the bias is still UP.

My belief is that most short term trend moves are 3 to 5 legs.

After 5 legs, the probabilities of another leg(s) start to diminish. This is just a statement about probabilities but I am not saying that the trend is over yet. Until there is some signs of reversal and confirmation the trend is still up.

The price is now well above the 200MA on the hourly and is also above the 50, 20 and 10MA. If you look at the chart you'll see that the 8MA and 20MA are frequently retested so don't be surprised to see a pull back to the 430 area in the next day or two.

There is some overhead resistance around 455 and then some more at 470. Notice to the left that there is little price resistance to keep it from moving up there quickly.

RUT Hourly Chart:

RUT: Choppy Day Ends Just Above 50MA

2009-03-25T17:19:00.000-07:00

The RUT had a very volatile day, but ended up positive and closed just above the 50MA on the daily chart.

The uptrend is still intact. Market is still trying to figure out which way to go.

RUT Daily Chart:

RUT: Pulling Back, But Still Holds Uptrend

2009-03-24T21:00:00.000-07:00

The RUT had a mild pull back today, but is still holding on to the uptrend.

The 430 area "looks" like a solid resistance area, but we'll see how it holds if the RUT should decide to retest it again.

This latest rally has 4 micro legs up by my count so it may have enough steam to make an attempt for a 5th. After 5 straight legs up I tend to lessen the probabilities of a 6th.

A 38.2% fib pullback would put it back to 400 so that's the area I'm looking to support on the way down.

RUT Daily Chart:

RUT: Up to 430 Resistance Area

2009-03-23T17:12:00.000-07:00

The RUT was up 8.40% today to the 430 resistance area it's been targeting for the last 2 weeks -- basically straight up. This is what happens in some cases when the rubber-band gets stretched in one direction.

The downtrend that accelerated in mid Feb when it broke 433 moved down for 15 days before doing an "about-face" and marching up in this current relief rally.

The bulls were pretty convincing today getting it all the way back up to 433 which was the "flood-gate" level that got the smack-down on that last move down.

Notice that the price moved up through all the downtrending moving averages, 8, 20 and 50 MAs. If 430 holds then my next upside target would be 450 and 470. There's now resistance between 450 and 470, so when it breaks 450 look for a quick move up to 470. The RUT moved up very quickly today from 420 to 433 for the same reason, very little price resistance on the daily chart.

I wouldn't be surprised to see the RUT trade in a range between 340 and 520 for the next few weeks. The bulls got this one today, but where there are quick moves up there are often quick moves down to counter. Keep on your toes.

RUT Daily Chart:

Take Risk, Avoid Danger: RUT Tight IC with a Twist

2009-03-19T19:17:00.000-07:00

This idea is for educational purposes only and is not a recommendation.

In this volatile market one of the best things we have on our side is time. In these unprecedented times, the market is likely to create some large swings up and down with several unexpected legs moving further up or down then many would expect under normal conditions. This presents some wonderful low risk entries for traders who would like to play a long game of chess with the market.

In order to make money in the markets we must take risks and our objective here is to take risks but to do it with a defined risk and to put the probabilities on our side.

The Strategy:
Sell a deep in the money spread at least 3 months out to let the market move over time to our spread area.

The Product:
We're going to use the RUT which is a cash settled index so we don't run the risk of our short strike being assigned.

The Entry:
When the market gets overextended (in your opinion, based on your technicals) Sell a $10 wide spread deep in the money for a $8.50 credit or more. This makes the total risk on your trade $1.50.

Exit 1:
Exit Scenario one is to take your profits and run once you've hit a profit target, in many cases you'll be closing it out months before expiration.

Exit 2:
Exit Scenario two is to Sell the opposing Spread to create a Tight Iron Condor that would have build in profit if it closes out of your pay zone, but would produce much larger profits if it trades in that area the last week of expiry. In that case you would close out the entire Iron Condor for larger profits the last week of expiry.
If the price is way out of the range, let it expire as you already have built in profit that will settle after expiry.

Example:
I'll use a real world example of a trade I put on to better show how these work.

The market was moving lower and lower and hit a new low in the 350 area. The RUT had been down for about 17 straight days. With time on my side and my experience of how fast short covering rallies can move I TOOK SOME RISK, BUT AVOIDED DANGER by selling the following position.

March 5: Sell (1)RUT MAY 440/430 PUT Spread for $8.70 Credit, total risk $10 - $8.70 = $1.30 ($130)

March 19: I could by back this position today for $5.95 with a profit of $2.75

I could also sell the top side of this position to create a tight IC by selling the MAY 450/460 for $3.00. This would give me a total credit of $8.70 + $3.00 = $11.70 for a trade that only has a risk of $10.00, in other words I make $1.70 no matter where the prices closes in May. If it trades near those strikes the on expiry week the profit will be much higher.

The keys are to sell with plenty of time so the market has plenty of time to move in your desired direction and you MUST use a cash settled index to avoid assignment risk.

The reason I like this trade is that it has a low defined risk, vega is in your favor, delta is in your favor once it moves in your direction, takes up very little margin and has an extremely high probability of winning.

This idea is for educational purposes only and is not a recommendation.

SPX: Kissing the 50MA on the Daily

2009-03-19T14:16:00.001-07:00

One thing I love about Moving Averages is the way they become magnets when the price action strays too far away from them. A good example of this can be seen on the SPX Daily Chart. First the price ran up to the 20MA and then kept on going up to the 50MA where it took a pause today.

A pull back would seem in order here, but we'll see what expiry Friday has on tap for the market tomorrow.

SPX Daily Chart:

RUT: Pattern Complete and Still Rising

2009-03-18T15:38:00.001-07:00

The Reverse Head and Shoulders Pattern was completed today as it hit it's upside target of 408 with a little help from the Fed Announcement.

The current upside target is the downtrending 50MA and the horizontal resistance area around 430. This is the spot the RUT will likely pause for a pull back.

The price continues to move up, so until we see some reversal signs the bias is still up.

RUT Daily Chart:

RUT Hourly Chart:

RUT: Bulltards Are Back

2009-03-17T19:41:00.000-07:00

One thing I love about the Russell 2000 is that it can climb up market walls that it shouldn't be able to climb up. What does that mean? It means that sometimes it just goes straight up without any pullbacks even when it technically "shouldn't." That's the beauty of the stock market and specifically what I love about the RUT.

Although the pull back on Monday seemed severe and produced a topping-type tail on the daily charts, it ignored the reversal candle and went up today anyway. One thing important about topping tail candles is that they need to confirm -- it did not confirm today.

The Reverse Head and Shoulders Pattern I've been watching is almost complete, it will reach it's target if it can climb to 408. Support levels below will now be 400, 395, 385 and 375.

The grand-daddy, short-term upside target is the 430 area which technically is getting very close now. 430 is just a few more uber-bullish days away. Since the move down from 425 to 405 was a quick and straight shot down, there will be very little resistance up to 425 on the way back up once it can clear 410.

The RUT is currently on a sprint with relatively few pull backs so be aware that once it reaches some of these key resistance levels up top it may take a significant breather before it tries to climb back up again.

What's really happening?
The debate has already started on whether this is a bear rally of a bear flag that was suppose to collapse today, etc., etc.

What's really happening is that the price is moving up and is continuing to move up. It's currently back above the rising 20MA on the hourly chart and that is bullish. Until the uptrend is broken my short-term bias is up because that's what the price is doing right NOW. A bullish pattern is playing out and if the RUT can squeeze out 5 more points tomorrow the target of 408 will be hit.

RUT Hourly Chart:

On the Daily Chart I see more of the evidence that the 430 area is starting to act like a magnet. Notice that this rally has blown past two topping-type candles already and today's action closed above yesterday's highs. As the RUT was falling over the prior six months, the strength of the move was characterized by bottoming tail candles getting blown through all the way down. In other words, the trend was MUCH stronger than the candles and candle patterns. The reverse is now being seen on the way up which shows the strength of this current rally.

RUT Daily Chart: (Note how close the 430 area is)

RUT: Hourly Update

2009-03-16T16:51:00.000-07:00

The RUT climbed up to 400 then lost it's steam and quickly fell back to the 385 area. There's not much support at all before 375, so unless the market decides to get really bullish overnight then 375 would be the first downside target.

The neckline of the Reverse Head and Shoulders is also at 375 so it will be interesting to see if it holds there.

RUT Hourly Chart:

RUT Hourly

2009-03-15T22:31:00.000-07:00

The RUT created a Reverse Head and Shoulders pattern on the hourly chart with a projected target of 408. Near that area is also the 38.2% fib which should also act as a magnet and resistance level. Above that is an additional resistance level of 413.

Above 413 there's not much resistance from seeing another fast move up to 430 and 440,450.

On the downside, a pull back should find some support at 387.50 and then 375.

RUT Hourly Chart:

RUT: B-Line to the 20MA

2009-03-12T14:01:00.001-07:00

The RUT put in a rocket ship day with very few pull backs to close up 6.50% for the day.

Amazing.

Tomorrow may have to take off some of the froth and then we'll see if more buyers are ready to jump in again. If it rallies hard again tomorrow the upside target would be the 38.2% fib at 408.80.

To close above 400 tomorrow would show that the bulls have temporary control.

RUT Daily Chart:

RUT: Topping Tail

2009-03-11T13:09:00.001-07:00

The RUT was up earlier in the session, pulled back most of the day, rallied at noon and then gave up advances the last 20 minutes of the session.

This left the RUT with a topping tail on the daily charts.

While this is generally a bearish signal, the RUT did close near yesterday's highs so in the broader context it was a decent follow through to yesterday's rally.

We can only wait now to see if we have further bullish follow through for the rest of the week.

RUT Daily Chart:

SPX: Bounce Underway?

2009-03-10T16:52:00.000-07:00

The SPX took it's cue from the banks and put in a nice rally today that held through the close.

First upside target is 745 and there is not much resistance to keep it from getting there.

After 745 the goal for SPX would be to hold above 750 and attempt to retest 800. The 750 area will be key to watch, short term bullish above it and bearish if it can't hold it.

SPX Daily Chart:

Bank Index: Bullish Follow-Through

2009-03-10T16:27:00.000-07:00

For the last few weeks I've been focused on the banking sector as it was getting very close to long term fibonacci support. Just like magic the 423.6% supported and the last two days have seen a nice bounce.

I put a new set of fibonacci levels so I can see the next probable target areas should this bounce continue. There are several topside targets starting with the downtrending 20 day moving average which is just overhead at 65.13.

The next area above the 20MA is at 75 where there is old support that can act as new resistance. Above the 20MA the downtrending 50MA has acted as resistance the last FOUR times it was tested. If this is a powerful relief rally it could blast through the 50MA and reach the 23.8% fib at 91.63.

Above 95, it's clear sailing up to the 112 area.

That should cover the upside targets for the next few weeks, and for the downside targets it would be a retest of the recent lows in the 46 area. Below 46 is uncharted territory so no downside targets as of yet, but the good news is it can only go down to zero and that would effectively mean our banking system has collapsed and we'd have more important things to worry about.

Despite the two up days, keep in mind that the Bank Index is still in a downtrend. This may only be a short term rally so keep your eyes on the charts.

S&P Bank Index:

Bank Index: Sympathy Bounce at the 423.6%

2009-03-09T13:07:00.000-07:00

The Bank Index had a great day today while everything else fell apart. It may of had something to do with taking a pause at the 423.6% fib level after traveling 17 months and 281 points (85% from the 327 support) to get there.

$BIX closed up 10.73% to close at 54.89.

We'll have to see if there's any follow through tomorrow or if this was just a one day pause before collapsing again.

Bank Index Daily Chart:

RUT: Still Falling

2009-03-09T13:02:00.000-07:00

The RUT closed lower today after breaking key support last week.

Next target below is 325 then 310... after that fib support at 267.

The rumored "relief bounce" is still just a rumor, no technical evidence to back it up yet.

RUT Daily Chart:

RUT: Broken Support

2009-03-08T21:56:00.000-07:00

The momentum continued lower last week breaking key support.

The RUT is now down close to 60% from it's highs in 2007.

Lots of talk about a relief bounce, but no technical evidence to support that theory yet.

RUT Monthly Chart:

VIX: Volatility Under Control?

2009-03-05T19:29:00.000-08:00

With the VIX closing at 50.17 today (only a 5.11% increase), it would seem that the general market mood is not quite as bearish as the price charts would indicate. I brought this up on the call 2 weeks ago and I'm making the same observation today.

Despite hitting new multi-year lows, the volatility index remains at the (now tame) 50 area. This is far away from the 70's and 80's we saw in October and November when the Bank Index as still up at 170 and fell down to 120. Remember, the Bank Index hit an ALL TIME LOW today of 49.02 which is more then a 50% drop from the November time frame when the VIX was hitting 80.

What does this all mean? I don't know.

What it suggests, is that the market has already priced in some of the bank failures and maybe much of the associated economic doom and gloom.

One thing we must remember, is that the stock market operates independently from the general economy. We see it all the time and we must remember that despite the most horrific economic news coming out day after day, the market can still put in a sustained bull rally that runs contrary to any logical reasoning. That's why it's more important then ever to watch our charts closely.

VIX: CBOE Volatility Index Weekly Chart:

S&P Bank Index: Down another 14.36 % Today

2009-03-05T19:12:00.000-08:00

With the Bank Index in it's death spiral it's rapidly approaching the 423.6% fibonacci target... and it's getting closer to zero.

Normally a 14% drop in any index would be a big deal, but at this point it's just another day at the office.

The chart is not giving me any indications yet that the death spiral is slowing.

Maybe the 423% fib is the support target it's looking for and we might get a bounce?

The next support level I see below the fib would be a bounce off ZERO.

S&P Banking Index Weekly Chart:

RUT: 350 in the bag, do I hear 325?

2009-03-05T17:21:00.000-08:00

As I posted yesterday, the RUT was poised and full of momentum to continue it's move down. Our first target from REALLY OLD price levels was 350 which it hit today, the next level would be the 325 area.

The further we move down this week, the better I like the probabilities of a relief bounce. I covered some of my open short positions today as I hit my RUT target and I don't want to be a pig. I am still long term bearish, but I will be patient now for a bounce or rally that will give me the opportunity for a low risk entry at a resistance level. That may take some time, but the wait will be worth the better probabilities.

I've posted a couple charts to take a look at some other potential downside targets/support areas. I had to use a monthly to go back far enough to fit the Fibonacci levels and 1994 price support areas.

Notice on the Monthly Chart how the 423% fib is at the same place as the 94 resistance level of 267. I sounds surreal to suggest that the RUT could hit 267, but I would have thought the same about 350 two months ago and we are there (350) today. It may support here, but there's really nothing to support until 267 with the exception of 300 where it supported for one month in 1996.

I'm not saying that we're going there, but since we're at 350 and we're STILL in a downtrend, then we need to start looking for the next targets.

RUT Monthly Chart:

RUT Daily Chart:

RUT: Peering Back to 2002 and 2003

2009-03-04T18:12:00.000-08:00

Wow, had to bring up a 10 year chart just to find some support levels. Sad.

Today's price action was pretty weak despite the fact if close up a few points. It was certainly not the "short covering rally" the bulls were looking for and it fizzled the last half hour of the session. This left the daily chart looking drab.

I posted a weekly chart so you can see the next couple areas of support at 350 and 325.

We could certainly hold this area and bounce from here, but the charts may have more resolve and more of a reason to get a "sustained" bounce if they retest those 2002 and 2003 lows. For whatever reason, prices like to retest areas, and with the downward momentum AND being this close, we should not be surprised to see a retest of these areas.

Everyone may be on the lookout for a capitulation day coming up that would be created by some panic selling followed by a short covering rally. This may or may not happen, but this is the area it would likely happen. Trade well.

Trend is still down, but probably begging for another relief rally. It doesn't take very long at all for people to forget they're afraid and they let greed take over again. That's what makes our markets so wonderful to trade.

RUT Weekly Chart:

SPX: Looking Purely at the Technicals

2009-03-04T17:36:00.000-08:00

The News was full of experts again today saying that we're bottoming here. I suppose their evidence was yesterday's New Low and the fact that today wasn't a New Low. Can you imagine being in a bull market and having the experts come on everyday calling a market top because yesterday was a New High and today we closed lower? It's never made sense to me why everyone is always trying to call bottoms and tops. I suppose it has to do with ego, but it's not a good way to try and make money.

Lets take a look at the daily chart to get an objective look of what's really happening here with the price action. It's not my job to call "bottoms," nor will making a bet on bottoms produce profits for me. I am more interested in trading with the prevailing trend rather then going against it.

The charts provided a rising wedge pattern (bearish pattern) that broke on Jan. 9th indicating a new move down was developing.

Last Friday the SPX broke and closed below the November low and support area at 750. Yesterday we put in a new low at 696.33.

What generally happens once a support area is broken is a retest of that level. If the bears win then the old support area becomes new resistance and the price falls further (As the banking index did this week), but if the bulls win then the price continues to move up over the support area again.

We should expect this move back up on the SPX to retest 750 as it's a normal pull back. The key will be to see how it reacts once it gets back to 750.

Patience is the key here as moves can take a long time to develop, especially as we retest old support and resistance areas like we are now. There are often some ugly battles fought at these lines.

Trend is still down until further evidence suggest otherwise. Go with the flow.

SPX (S&P 500): Daily Chart

Banks Again

2009-03-04T17:18:00.001-08:00

Today was an interesting day.

As the broad markets enjoyed a mini rally (one that fell apart at the close), the S&P Bank Index closed at a NEW LOW.

After breaking another support level last week, it too got a little relief bounce, hit resistance and fell down to close at a new low.

This index continues to move lower as indicated by the trend.

It did pause at fib support near 54 which as this point in holding. A close below that level tomorrow would be pretty bearish.

S&P Banking Index: Daily Chart

Bank Index in Focus

2009-02-27T13:21:00.000-08:00

Well, the S&P Bank Index was able to tie that "4 day consecutive day move up" record that I posted on Wednesday, but it had moved into double-whammy resistance of a downtrending 20MA on the daily chart and some horizontal resistance at 75. The price was rejected today and finished with red bar.

I'll keep watching this index next week as it's health will continue to dictate the health of the broader markets for the near term.

S&P 500 Bank Index, Daily Chart:

Bank Index Downward Momentum in Check...so Far

2009-02-25T17:53:00.000-08:00

Last week I put up chart of the S&P Bank Index showing that it was close to hitting a fib target to the downside. It hit the 161% target and it's seen a bounce this week.

Fib targets are great places for reversals especially after a long extended move as in the case of the bank index. This would make sense for a relief bounce here if not a full blown reversal area.

There is one more longer term fib on the index chart below, the 423% from the tip top of the move down to the 46 area (it closed at 70 today). That area may still be a target so be aware of that one. The market may still show us a capitulation day that would shake out all the sellers and give the market a real reason to believe we've put in some sort of intermediate bottom. If that happens the bulls will try to take over for while.

The bank index has put in three consecutive up days.

Trivia: The bank index has only put in ONE rally with more then three consecutive up days since last May (almost 10 months). So, tomorrow we either tie the record with four or the index closes lower tomorrow.

S&P Bank Index: Daily Chart

Bank Index Hope: Bring in the Fibs

2009-02-19T18:52:00.000-08:00

There appears to be some possible fib support in the 50 area, lets see if the blood is the streets is enough to find some buyers looking for some bank bargains.

S&P Bank Index: Weekly Chart with Fibs
Note: Red horizontal line below is ZERO.

RUT: Broken Wedge

2009-02-18T13:27:00.000-08:00

The RUT continued to move lower after the wedge pattern break yesterday, next daily support level looks like 416. We'll have to see how it reacts to that area tomorrow as there is not much price support on the daily until 370 and 360.

RUT Daily Chart:

Banking Index: Getting Closer to Zero

2009-02-17T13:23:00.000-08:00

The thought of the banking index at 100 or even 200 a few years ago would have received laughs from anyone that would have suggested that. Today the S&B Banking Index ($BIX) closed at 65.59, an all time low.

If it can go to 100, and if it can go to 65, then unfortunately it can go to zero. That would mean the nationalization of our banks.

I'm not trying to paint a grim picture here, the charts do a better job at that.

S&P Banking Index: 10 Year Monthly Chart:
Note the numerous huge monthly bottoming candles that were completely taken out.

S&P Banking Index: Daily Chart:

Deflation: Just Another Economic Term to Ignore?

2009-02-16T11:22:00.001-08:00

Question everything you read and everything you hear. Then spend some time in silence and let your inner voice tell you what you know is "your" truth.

I just finished reading a 1980 primer on Deflation authored by the editors at Hard Money Digest. What I found so interesting about this discourse was that much of the discussion focused on interest rates which at the time were close to twenty percent. I don't think the authors back then could have imagined that thirty years later we'd be taking about another round of deflation but with zero interest rates. I don't think that would have worked in their equation.

It just goes to show that economics, just like the stock market, is best understood when you stick to the basics. After reading the book this morning, I spend another 45 minutes educating myself on deflation on the web by reading blog posts and comments. It just took those short 45 minutes to convince me that, although well intentioned (like me), everyone is full of crap (in a nice way) because they're all guessing. It's seems that in past that even the highest paid, most respected economist in the world get it wrong most of the time. The same could be said about the Wall Street geniuses that were blind to the long term moving average "trend breaks" that screamed the warning signals of a trend change. What ever happened to hedging? Why did the biggest guys on Wall Street get it wrong? (The smartest guys on Wall Street did get it right, but they were the pint-sized minority who went short)

The news, more then ever, is again full of speculation on a new set of negative economic and market predictions that in the context of good trading are completely irrelevant and are actually harmful for me to entertain.

ECON 101 converted to trend
Technically the major indices are in an intermediate downtrend and demand is shrinking across the board for goods and services because unemployment is rising, credit is tightening and people are holding on to the current cash they have. If corporate profits fall and future short term projections are negative then stock prices will continue to fall. Those are the basics. I will continue to follow any data that would counter those facts, but the sum of the above points to continued GDP contraction. In other words, the GDP is trending down. That's all I personally need to belief about the current economic conditions, why should I complicate it? When the GDP starts trending up I will re-evaluate.

As I trader, my primary objective is to follow a system that will give me consistent profits.

Trend, support and resistance. That's my basic system and it works because it keeps me trading in the direction of what's happening and not what "I think will happen." Moving averages are the best way I've found to keep me on the right track. If the moving averages are sideways, I sit on the sidelines until a new trend develops.

We're in a consolidation mode right now and a wedge type pattern has shown up on the RUT. Wedge patterns are typically a continuation pattern and as history will show, they typically DO continue the current trend. However, I will wait for the market to show it's hand, but I will not be the contrarian here and try to fight the trend. I will be patient and let my rules dictate where I get in, where I put my stop and where I put my first target.

The title I read this morning"Deflation: The Greater of Two Evils," was written at time of prolonged "inflation" and the authors suggested that the warning signals were starting to appear for a period of deflation in the 80's. The book was on the right track and the early 80's did see disinflation (a decrease of inflation). I applaud the authors for sending the warning signals to their readers. There are many time in the book where they make it a point to disclose that they are not saying that "deflation" will happen, but they are being prudent and proactive in outlining what could happen and what one can do to in the event that it does happen.

Buy Now
$79.00

Not to get on a rant here, but where were the professional money managers when the longer term uptrends broke? Did they hedge? Did they advise their clients that there might be a possibility of a prolonged downtrend? Did they contact their clients and suggest any hedge strategies? Just another example of so-called experts getting it all wrong. They were apparently indoctrinated with the fallacy that the stock market always goes UP over the long haul. Have you looked at a 20 year monthly chart lately?

SPX 20 Year Monthly Chart:

Although the market was closed today, index futures did trade and closed lower with the TF closing below an important 440 support level. If it holds there could be a nice bounce next week, but if it breaks the evidence of a new move down starts to mount.

If you're not well versed on deflation, you may want to spend some time getting an overview from several different sources and then make your own decision on what you want to follow or not follow from an economic standpoint.

As it has been often said, "Price discounts everything," meaning that "price" takes everything into account so you can forget about all the data, all the rumors and all the speculation, the talking-heads, the bull contingent, the bear contingent and the astrologer's reference.

Will believing the market will go down make you money? Will believing the market will rally from here really make you money? Are you trading a system that can take advantage of either direction? Do you have a neutral strategy? Only you can trade your system and only you can answer those questions. My hope is that you are able to clear your head from all the noise and speculation out there right now and trade your system which in turn will produce consistent profits for your account.

Price is true.

Cycles Create Patterns or What Caused the Great Depression

2009-02-15T16:40:00.000-08:00

As a trader or investors it's extremely important to understand cycles and the importance they play in creating tradable patterns. Whether you belief in cycle theory or not, they do exist in nature and the markets.

Cycles create patterns that, as prudent technical traders, we should be very aware of.

Part of understanding cycles is that NOTHING goes in a straight line forever, and while we as traders will recognize our greatest profits by staying in a trend for as long as it last, we must also understand that the seemingly never ending trend will at some point REVERSE and go the other way for a little while or a long while.

Later this week I'll post more on this topic including some simple specific signals to assist you in defining direction.

For further reading, check you public or university library for books on cycles and cycle theory. Like all subjects surrounding the markets, we do not have to believe everything that's been written about the subjects, but as students of the markets it's important for us to at least understand the basic theories.

Edward R. Dewey is one of the best known authors on the subject of cycles.

The following book is a rare first printing of the 1949 edition and is for sale from our collection:
Cycles: The Science of Prediction (with a 1950 Postscript on Deflation)
Dewey first became interested in cycles while Chief Economic Analyst of the Department of Commerce in 1930 or 1931 because President Hoover wanted to know the cause of the Great Depression. Dewey reports that economists gave him no consistent answers on the cause of the depression and he lost faith in economic methods. He received and took advice to study how business behaviour occurred rather than why. This book attempts to establish the ground for a completely new approach to the economic problems of our era. From a technical standpoint, one only needs to look at a 50 year SPX monthly chart to see how these cycles work themselves out. From a practiclal standpoint, cycle theory and technical analysis go hand in hand to create powerful patterns like the double top that we witnessed on the SPX monthly chart last year (2008). For those who ignore cycles, the ignorance is likely to be at the peril of their trading and investment accounts. This book is a great overview of Dewey's theories and even for those of you who chose to ignore his premise, this is a great primer on his findings. The additional 1950 postscript "Further Deflation and it's Promise" is a wonderful essay extremely relevant to our current economic crisis . 307 pages (52 in postscript plus 255 of main title).

Buy Now
$89.95

RUT Weekly

2009-02-13T13:45:00.000-08:00

The RUT has now spent 4 weeks consolidating in a range between 470 and 440 as you can see on the weekly chart.

On the daily chart, the wedge has been broken to the downside hinting of some more possible downward movement soon.

Notice the distinct downward angle of the weekly 20MA. For weeks the price has been overextended and has been making it's way back to retest the 20MA.

With the blue 8MA you can see how it trended down and has been consolidating sideways.

Three things can happen from here, each with a 33% chance of happening, more consolidation, a reversal to the upside or a continuation of the trend to the downside.

The break of the daily wedge to the downside gives a slight bias to a continuation of the trend downward, the trend of the 20MA and 50MA supports continued downward motion.

I personally like to trade with the prevailing trend, so I will wait to see which direction confirms out of this consolidation.

RUT Weekly Chart:

My Intraday Trading System and Rules

2009-02-05T18:25:00.000-08:00

Disclaimer: The information below is for educational purposes only. The information is intended to show an example of how one can approach intraday trading but is not a recommendation nor suggestion of how to trade.

My intraday System is based on following the trend of the 5m 20MA.

The goal is to enter as soon as the direction is confirmed and to follow it as long as the trend remains intact.

Some rules and guidelines.

- Only trade in the direction of the 5m 20MA (no counter trend trades)
- Never trade a sideways 5m 20MA, be patient and let the market show it's hand first
- Once price has cleared consolidation, enter on first pull back
- Always wait for confirmation, do not anticipate
- Trade the 5m chart, but it's okay to based entries and exits on the 2m chart
- Believe that the 20MA will hold a pullback
- Believe that any large move will have a pull back and then move that same amount or more for it's second leg.
- If I get stopped out of a valid entry, immediately start looking for the second entry.

Since markets trend consolidate and then trend again, my objective is to enter at the beginning of the trend and milk the trend for as much profit as possible.

This works best in on a trending day, but below is a document of market direction for the last 2 days as measured by the direction of the 5m 20MA.

Wednesday:

6:30 Sideways
7:00 Up
7:30 Up
8:00 Up
8:30 Up
9:00 Sideways
9:30 Down
10:00 Down
10:30 Down
11:00 Down
11:30 Down
12:00 Down
12:30 Sideways
1:00 Sideways

Thursday:

6:30 Down
7:00 Down
7:30 Up
8:00 Up
8:30 Up
9:00 Up
9:30 Up
10:00 Up
10:30 Sideways
11:00 Sideways
11:30 Up
12:00 Sideways
12:30 Down
1:00 Down

From the two days above and by looking at their charts, you can see that both days have good opportunities for catching some extended moves. The Key is to first understand the direction of the 5m 20MA and second to watch how the price is acting next to it.

Notice on today's chart (Thursday) how at 7:30 the price was now above the 20MA and that it remained above the UPTRENDING 20MA 10:15, over 2 hours heading up.

My goal is to continue getting better at trading my 20MA trend rather then trading the candle movement within the trend. Watching the movement within the trend is more noise than creditable, actionable information.

I'm not advocating entering or exiting on each direction change of the 20MA, but my profits will be greater the more I can trust the 2OMA especially on large trending days in one direction.

TF Thursday: 5 Minute Chart

TF Wednesday: 5 Minute Chart

RUT: Looking at Some Trendlines

2009-02-05T16:46:00.000-08:00

The RUT held it's own today and after gapping down rallied to close up 6.6 points at 455.

Pulling out to the Daily Chart there are several things that stand out to me. I'm going to list my observations below.

- The 200MA is pointing down, confirming an intermediate downtrend
- The 50MA is sideways, indicating consolidation
- With the consolidation the next move will either be continuation or reversal
- Markets generally resume in the direction of the intermediate trend (RUT did it for 5 years going up, now time for the bears?)
- Price is in the bottom 25% of the overall move down
- Price resisted when it hit the 38.2% retracement area
- Just confirmed lower low and lower high, confirming current short term bearish bias
- 20MA pointing down
- Wedge type formation forming on daily chart, wedges are typically a continuation pattern

Those are some observations of the chart taken at face value, since the trend is down, we have a lower high and lower low and a continuation pattern is forming I'd have to say the charts are looking a bit bearish. Having traded a lot of wedge patterns, the can be tricky and looking at this one there seems to be room for another move up to retest that upper trendline before it decides to fall. I am by no means saying that's what it's going to do, but now that I have my lines on here I start looking for the potential possibilities so I am better prepared with where resistance and support areas are likely. Just be aware that if it does get a bounce here there is some overhead resistance at that trendline.

RUT Daily Chart:

Rare and Out of Print Financial Books

2009-02-04T13:04:00.000-08:00

Since launching our bookstore on abebooks.com in January, we now have over 100 titles uploaded and available for sale. Abebooks.com is a website that specializes in rare and out of print books by linking thousands of specialty books stores like ours from around the globe. We're currently adding about 10 more titles per day which means we should have our complete collection of about 5000 titles listed by December 2011. We specialize in rare and out of print books related to trading, Wall Street, Financial History, Economics and Commodities. Additionally we have many rare trading systems and courses by W.D. Gann and other legendary trading minds.

We own one of the largest private collections in the world.

You can browse our collection at www.abebooks.com. Our store name on Abebooks is Alanpuri Trading. Additionally you can find more information on our collection including author bios and more details on some of the rarer titles at www.raretradingbooks.blogspot.com

RUT: Say Hello to the Downtrending 20MA

2009-02-04T12:52:00.000-08:00

The RUT followed the morning session bullishness to hit our 2nd upside target of 460, but was quickly reminded that the area had double whammy resistance with a the 61.8% fib level AND the downtrending 20MA on the daily chart.

It closed lower to form a topping tail candle on the daily, pretty bearish but since the RUT is now in chop mode anything could happen here. I continue to watch the hourly charts as those give a little better clarity in this volatility. The RUT 200MA on the hourly is dead sideways and it broke the hourly uptrend so tomorrow I'll have my bear cap on for starters.

RUT Daily Chart:

RUT: Small Body Bar on Daily

2009-02-03T13:00:00.000-08:00

The RUT closed higher today after reaching and testing the 455 (50% fib) area that was my closest upside target yesterday.

Two days up in a row in this market is an accomplishment, we'll have to see how it goes tomorrow. The same downside targets hold true that I posted yesterday and the same upside as well.

RUT Daily Chart:

RUT: Taking a Look at the Hourly

2009-02-02T17:26:00.000-08:00

The general bias is down on the RUT (lower high, lower low), but it did hold the important 440 level we talked about last week.

Tomorrow will be important to see if it can follow through or if it's ready to fall apart some more.

I posted a 60m chart of the RUT because it gives a bit of a different picture then looking just at the dailies. First thing to note is the direction of the 20MA which is down, also notice the fibs I put on and where it resisted today...a 38.2 retracement.

While today closed positive I want to keep in mind that it just had a strong 2 day drop and a relief bounce was probable and some point and would likely retrace to 38.2% or 50%. We got the 38.2% and now I need to watch the price action tomorrow it see if the move continues to retrace up to 50% or 61.8% levels or if it's just going to roll over.

I have no bias what it will do tomorrow, but know the levels it is likely to target. The 440 area will be key again to hold for the bulls to have a chance to push it back up again.

On the upside I have the following targets / resistance:

- 455.78: 50% fib
- 460.18: 61.8% fib
- 474.42: 100% fib retrace

On the downside I have the following targets / support:

- 431.51: 100% retrace of last mini-rally
- 405.05: 161% retrace of last mini-rally
- 362.22: 261.8% retrace of last mini-rally

That covers a range of almost 100 points so we should be able to stay in that range on Tuesday.

RUT Hourly Chart (Bull upside fibs)

RUT Hourly Chart (Bear downside fibs)

RUT: Lower High, Lower Low = Down

2009-01-30T13:18:00.000-08:00

The RUT resisted off the downtrending 20MA and has now formed a lower high to go with it's lower low. This confirms our bias for short term bearish.

Not much else to say, the chart does a much better job at showing what's happening.

440 support will be a critical area to hold next week.

RUT Daily Chart:

RUT: Testing the 20MA

2009-01-28T15:02:00.000-08:00

The RUT got a boost today and closed up close to the now sideways 20MA on the daily chart. This may hold up as an area of resistance, but once it gets sideways the price is likely to chop around it for a while before another direction gets set. In store, more uncertainty.

The RUT chart now has a lower low, we just have to wait and see when this current rally rolls over to analyze the level of the next high.

RUT Daily Chart:

Volatility Revisited

2009-01-22T18:08:00.000-08:00

Pulling out to the weekly charts, both the VIX and RVX are a bit higher this week, but not too bad considering the chaotic price movement the last few days. Looking at these charts it hints a bit in favor of the bulls.

We'll have to see if those topping tails on the weeklies actually work next week.

VIX Weekly Chart:

RVX Weekly Chart:

RUT: Dancing on the Neckline

2009-01-22T17:16:00.000-08:00

The RUT is starting to create a head and shoulders pattern, but appears too weak so far to even create a right shoulder.

Looking at the weekly chart, bulls got excited about the bottoming tail created last week, but thus far it's been negated. Another down day tomorrow (Friday) could take it out completely. The rising wedge pattern continues to work, and a retest of the prior lows on the weekly near the 410 area becomes more of a probability.

RUT lost 460 support earlier this week, but lets see if it can hold on to 440. Without 440 it's a straight shot down to 410 on the weekly chart.

RUT Weekly Chart:

RUT Daily Chart:

RUT Monthly Chart:
The bottoming tail from December has yet to generate a strong reversal.

RUT: Reverses Intraday After Hitting New Low

2009-01-21T19:33:00.000-08:00

The RUT put in a positive day after testing yesterday's low near 430, it closed at 456.76. When it lost 440 yesterday it created an even lower low. This continues to hint that the move to retest the prior 370 lows is ever present.

The RUT is now back in the 440 to 490 range, which will be important to watch. The price is now under the 8MA, 20MA, 50MA and 200MA -- bearish. More importantly, all of these MA's are pointing DOWN. The RUT may get a bounce here as a continuation of today's move, but keep your eyes on the 20MA as it's direction will likely be the light that illuminates the path.

RUT Daily Chart:

RUT: Head and Shoulders?

2009-01-19T21:49:00.000-08:00

The RUT formed a LOWER LOW on the daily charts that is bearish no matter which way you slice it. The 440 first target of the broken rising wedge was hit in just 4 days.

The short term uptrend was broken, and in the context of an intermediate downtrend the next little rally is likely to form a lower high which will then create a Head and Shoulders pattern.

The possibility still exist for the market to fall straight down from here too, so all those options are on the table now. We'll just wait to see if 460 can hold tomorrow for starters. The upside target for an "Obama Rally" would be 490. The 440 area would be the first target to the downside.

We are now able to draw our neckline and downside targets IF the H&S Pattern plays out.

RUT Daily Chart:

RUT: Break of 460 Creates Lower Low

2009-01-14T13:22:00.000-08:00

The rally has come to an end with today's close below 460. When this current down draft halts and it starts moving up again it will have formed a lower low on the daily charts and likely a lower high.

Next level of horizontal price support is at 440, so that would be the first target. There's also a 161.8 fib target at 425.97.

RUT Daily Chart:

RUT: Downside Fib Targets

2009-01-13T21:03:00.001-08:00

With the RUT breaking the rising wedge, it seems appropriate now to take a look at some downside targets should this pattern get some follow through.

The key level for the RUT to hold is 460. If 460 is breached it will be a 100% retracement of the 5 day (low volume) rally that started on December 30th. A close below 460 on the daily charts would create a lower low and put into to question this little (bear flag) uptrend.

The fib targets to the downside are 161.8% at 425 and 261.8% at 368.

There are 2 conflicting patterns now that both confirmed, one to the upside and one to the downside. The upside pattern was the reverse head and shoulders and the downside pattern was the rising wedge. If the RUT stays above 460 then the downside numbers were just a fun exercise and the upside targets would be 490, 500, 520, 550 and 580. The reverse head and shoulders target to the upside is 580. This would be a strong area of resistance (brick-wall like) and a likely area to produce a strong bounce downward.

RUT Downside Targets on Daily Chart:

RVX: Next Stop 55?

2009-01-12T19:47:00.000-08:00

The RUT Volatility Chart B-lined to test support, and bounced hard. Now Where?

RVX Daily Chart:

RUT: Rising Wedge Broken

2009-01-12T16:47:00.000-08:00

The RUT Broke down to close below the 8MA, 20MA and 50MA. It also closed below the upward trendline confirming the break of the rising wedge. The uptrend is still holding up technically on the daily chart, BUT it will need to hold above 460 this week in order to retain the higher low.

Here are a couple observations of the daily chart:

- After the huge 3 month move down in Sept, Oct, Nov, it was technically probable that it would retrace at least 38.2% (520), if not 50.0% (567). So far it has retraced 38.2%

- Since the RUT is in an intermediate downtrend, a bear flag formation is/was probable. Now it appears to be breaking down.

- The average trend is 3 to 5 legs, this 6+ week rally has had 4 legs so far.

- The last bear flag in Oct preceded a 180 point drop to the 370 area.

- If the current bear flag produces a similar 180 point drop the target would be 350.

- The intermediate trend is still down.

RUT Daily Chart:

RUT: Higher Highs and Higher Lows

2009-01-08T14:23:00.000-08:00

The RUT continues to confirm the short term uptrend and successfully supported at the up-trending 8MA today.

Upside targets based of fibs would be 520 for the 38.2% and 567 for the 50% retracement. There's some horizontal price resistance at 550 so that if broken will get the bulls thinking that life is sweet again, but to be real it will have to retest and hold that area too.

If we revisit the target of the confirmed reverse head and shoulders, 580 becomes the upside target.

Although the RUT broke the primary uptrend line (dotted green), it's still holding on to the secondary. At the same time, it's forming a rising wedge which is a bearish pattern. We'll have to watch closely to see which of these patterns wins out.

RUT Daily Chart:

The Volatility Charts

2009-01-04T12:18:00.001-08:00

I haven't posted any of the volatility charts in a while so I decided to post the RUT and SPX levels to locate some S & R levels as well as look at some possible ranges it may stay in for the next few months. I took the "log scale" off so you can see visually how wild this move actually was. I may allow you to start plotting a potential VIX range in the upcoming months. Right now the range is so huge that we'll need to see the next level of support to help us connect the dots.

Technically, both charts have broken below the 20MA and now seem to be on target to test the red 50MA. However, last weeks rallies were on light volume, and could collapse just as quickly next week. We have seen this happen many times in the past, and this time we actually have a longer term downtrend to help.

Regarding RUT, I must still follow what the charts are telling me, but with 3 aggressive days up in light volume I need to be prepared to take advantage of a pull back which could end up turning into a longer move. This move off the bottom has made 4 legs so far into 500 resistance so we'll see this week if it creates an exhaustion move before heading lower or if the bulls decide they want to take it up for a while longer. Next target for me is 520, then 550. At 550 I start scaling (small position) into some short positions regards of what the news is. That is NOT a recommendation, but the charts and past behavior suggest that if the RUT does move to 550 (strong resistance) then a pull back to 500 or lower is probable. This all in the context that we are in a downtrend and I want to go with the prevailing trend.

This brings us back to the volatility charts. The VIX has pulled back to some old resistance extremes and it wouldn't be surprising at all the see the market pull back strongly next week after hitting this target. If the market does continue to rally next week the bears will start salivating as this will just give them better low risk entries to the downside. It will be interesting for the SPX.

On the RVX side of things, it appears that the RUT could easily rally a bit longer to allow the RVX to drop more down to a support level like 45 or 40. I'll be watching those volatility levels very closely this week.

VIX Weekly Chart:

RVX Weekly Chart:

RUT: 3 Days Up, Now What?

2009-01-02T17:09:00.000-08:00

The RUT enjoyed a light volume rally for the past 3 days, but now that it's technically moving away from the 20MA and 50MA, the days of this rally are likely numbered. The key now will be to see if the pull back holds or if the 4 legs up it just took are just a nice fat bear flag. Maybe it will take one more leg, making it an odd 5 before it cracks lower?

One can't fight what the charts are saying, "higher highs and higher lows," but we are in an intermediate downtrend so at some point it will likely be a bear flag. Don't fight it, just be aware of what it likely is.

RUT Daily Chart:

RUT: Light Volume Bulls Get It

2008-12-31T15:06:00.001-08:00

The RUT moved up again today on light volume to give it a confirmed higher high on the daily charts, just like it did last December before everything fell apart.

The charts look great and bullish, but lets see what happens when some volume comes into the market next week.

Happy New Year!

RUT Daily Chart:

RUT: Bulltard Afternoon

2008-12-30T19:46:00.000-08:00

There's nothing like bad consumer confidence numbers to spark a rally and today was no different. The market shrugged off the dismal numbers, held 50% of the morning move and then took off like a rocket in the last hour to close at 482.77. This was on very light holiday volume.

I mention the light volume, because it was the light volume rally the day after Christmas last year that created the top at 800 right before the January collapse.
Rallies on low volume are suspect, so be careful.

Technically the price is holding above the 20MA and a strong green bar materialized closing above the weeks consolidation, so the charts are looking bullish. We'll have to wait and see if it can follow through.

RUT Daily Chart:

RUT: Once a Trend Line is Broken...

2008-12-29T17:00:00.000-08:00

The RUT put in a down-day to close 1 point above the 20MA on the daily chart.

The 8MA and the 20MA are just starting to rollover, so watch to see if there is follow through tomorrow.

At at glance the 20MA is moving sideways which gives me no guidance on direction. Lets break it down:

Bullish:
- Higher high on the daily charts
- Price is still above the 20MA

Bearish:
- Broke the uptrend line on the daily chart and has now spent 6 sessions below it.
- Starting to form a mini head and shoulders pattern on the daily
- 50MA and 200MA still pointing down

Keep in mind that the current geopolitical issues could move the markets very quickly in the coming days and weeks as oil prices get pushed around.

RUT Daily Chart:

RUT: Tiring

2008-12-23T13:24:00.000-08:00

The RUT closed lower today, but is still holding the 20MA on the daily chart. This still has to been seen as mildly bullish since the higher highs and higher lows are still intact.

Yesterday I did point out that this is the third leg of the relief rally, and in the intermediate downtrend we find ourselves in, three may be all we get. A normal rally would be three to five legs so with the negative sentiment it will likely be three to five. We'll have to see.

Just from a pure visual glance at the charts I see the path of least resistance being 440 on the daily charts. Even if the RUT is going to move up higher it makes more sense to me that it will need to produce a bigger pull back in order to get some strength.

At present, 460 is the area that needs to hold to keep the bullish bias intact as that's the area of Monday's lows.

RUT Daily Chart:

RUT: More Mixed Signals

2008-12-22T17:55:00.000-08:00

The RUT continues to put in higher highs and higher lows on the daily charts AND it successfully retested and bounce hard off the 20MA today creating a bottoming tail. In a bullish market this would be great and I'd be pretty bullish, but there are bearish factors that take some of the stream out of this move...

1) Short term uptrend was broken and price is still below it
2) Today's bar closed below Friday's lows (Friday was a topping tail candle)
3) Resisting at 490
4) Today's selling down to 460 showed that there are sellers out there
5) This relief bounce has had 3 legs up so far and may be weakening
5) We are still in an intermediate bear market and path of least resistance is now down

With all that said my bias still cautiously bullish with today's close, but I also see 440 as a likely target if it falls apart tomorrow.

RUT Daily Chart:

Tonight's Conference Call Canceled

2008-12-18T09:24:00.001-08:00

Sorry for the late notice, but tonight's call is canceled due to a conflict with our granddaughters Christmas Play.

Our next conference call will be January 8th, 2009.

The charts at the time of this post are looking awfully bullish. Higher highs and higher lows continue on the daily chart.

RUT: Up Again

2008-12-16T15:23:00.000-08:00

The FED's promise of FREE money got the RUT moving to the upside again.

Today's close at yesterday's upside 480 target helped to prop the price back over the green uptrend line again. This also kept the "higher low" intact. Today's close at 482.85 also guarantees a higher high (only by 1 point), but it is a higher high technically.

Tomorrow will be key to see if there is follow through. This may be the excuse they needed to go on a Santa Rally buying spree.

There is overhead resistance at 550 and 580. For the time being I expect the price to chop between the upward trend line and 550. A close below the trendline again will force me to reassess.

Tomorrows Uber Upside target: 512
Needs to hold (close above) at least 466 to keep bullish short term tone.

Be prepared for anything tomorrow. In many cases a bullish reaction to the Fed has crumbled to new lows just a few days after. There is no evidence of this yet, so we trade in the direction that the chart shows us, but we are prepared to switch direction at a moments notice if that's what the chart tells us.

I am still trading intraday only and am not ready to take any swing trades "Long" at this time. It's likely that I will use my patience and wait for the price to reach a strong resistance area like 550 or 580. At those points I would look for a reversal signal to enter some "Short" swing positions. I fell more comfortable trading in the direction of the intermediate trend in this type of volatility.

RUT Daily Chart:

RUT: Weekly Chart > 8 TRAIN

2008-12-15T19:18:00.000-08:00

One way to make boatloads of money while trading is to take the Train.

The best train to take is the 8 Train.

What is the 8 Train?

The 8 Train is when the price trends aggressively up or down, but NEVER breaks the 8 period moving average. Get in, and don't get out until the 8MA is broken.

Looking at the RUT weekly chart you can see that the 8 train is still chugging along to the downside. Note the rejection it got today as it tested the 8MA.

Something to think about, it works on all time frames.

RUT Weekly Chart:

RUT: Weakness

2008-12-15T18:33:00.000-08:00

The RUT closed lower today and here's what we have on the daily charts:

For the bull arguement:
- Tested and stayed above the 20MA
- Still above the neckline of the reverse head and shoulders

For the bear argument:
- Closed below the short term UP trend line. (green line on chart)
- Closed more then half way down Friday's bullish daily candle

There are two arguments in favor of the bulls AND bears so we have a draw. This brings me to a neutral bias and we'll just have to see if the FOMC meeting tomorrow can tilt it one way or the other.

The 20MA is running sideways which is difficult to trade since it is likly to move across it for a while if we continue to consolidate here. I am still keeping my trades to an intraday basis only as there is no firm direction on the daily charts yet. I will wait to see the 20MA trending before I take any directional trades longer then a day.

Fib wise, it favors the bears since it broke below the 50% area again, so that's one more argument for the bears... we see how tomorrow unfolds. The TF fought hard this afternoon to get back over 450, that will be a key area to hold on the TF tomorrow.

Agressive targets for tomorrow:
Upside: 480
Downside: 430

The more I look at this chart, the weaker it looks to me. Notice that it has been unable to put together more than a one or two day rally for the last 11 sessions. This put together with the second break of that trendline in 3 days is starting to raise the warning flags for me. It will take the bulltards to come in with blinders on to buy aimlessly in order to pump this thing up at this point. It very well may happen, so I'll be ready to jump on that train for as long it's rising. The reverse head and shoulders is still in play for me as long as the price stays above the dotted red line of the downward trend. I have often seen prices test and bounce hard off that line.

RUT Daily Chart:

RUT: Holding the 20MA

2008-12-13T15:05:00.000-08:00

The RUT put in a very bullish day Friday after retesting the 20MA on the daily chart and the 440 support area. On the bullish side, it also closed up about 70% of the previous day's red bar. A close higher then 55% of the red bar would be seen as bullish.

With the current market volatility I'm taking a day by day approach to my bias and for today I am short term bullish since we held the 20MA and it created a higher low and a higher high on the daily charts. We'll see what happens on Monday.

RUT Daily Chart:

RUT: Lots of Action, What's Up for Tomorrow?

2008-12-11T15:34:00.000-08:00

(Levels mentioned are for TF Russell 2000 E-mini Futures intraday price action)
Today was a great day on the RUT (TF) as it traded very methodically and predictably between well known support and resistance levels of 464 and 474 before it cracked 464 and fell apart all the way down to 450.

Yesterday I posted that 474 was still a very important level to clear and the RUT tested it twice creating a double top pattern on the 5 minute charts. Just before 12:00, it broke 464 support and for the rest of the day it was the smack down to 450 which was the next plausible support level.

In the context of the daily chart, this was just a minor pull back to the 20MA. If the bulls show up tomorrow it should bounce here at the 20MA and if it is to remain bullish, it must close above 464 which would be a 55% retrace of today's red bar. If it closes below 464 tomorrow I give the control back to the bears.

What was really bearish about today's close, was that it closed below the green uptrend line AND the dotted green neckline of the reverse head and shoulders pattern. Broken trendlines in my experience are some of the greatest subtle indicators available to us.

With that trend break, I would not be surprised if the move continued down tomorrow and retested the backside of the daily downtrend line in the 430 area. If it does, it may be a good area of support that give the RUT some more footing for another leg up. If it supports at 430 it would create a higher low on the daily charts and still keep this short term rally alive. With Monday's close at 480, the RUT daily chart did create a higher high. The next few days will show us if we have a higher low or if we head down to retest the resent lows.

In summary, it will go up or down, but at least you have some targets on both sides to shot for.

RUT Daily Chart:

RUT: Still Holding the Neckline

2008-12-10T23:15:00.001-08:00

The RUT held the neckline again today, and with a rally in the last half hour was able to close above the important 474 level after getting beaten down after lunch to 469.

The daily chart is looking bullish, we'll see how tomorrow goes. That 474 will again be the key area to support tomorrow. If we fall, watch 465 as important support, if that breaks, it could easily go retest 450.

RUT Daily Chart:

RUT: Pullback

2008-12-09T13:07:00.000-08:00

The RUT had an extremely bullish morning session moving straight up to the 490 area where it tapped the R1 pivot. It continued to fall hard the rest of the day where it closed near it's lows at 465. This close was also near yesterday's lows.

As I mentioned in yesterday's post, 474 was an important level to hold. Today's price action created an ugly topping tail candle at the old November resistance levels near 490. The RUT may now be in a position to pull back a bit more to retest the neckline of our reverse head and shoulders. If it tests and holds it's starts looking very bullish for the short term.

The 8MA and 20MA on the daily chart are starting to level out and go sideways which may invite some whippy action above and below those MA levels. The chart shows how the 450 support level near the 20MA may be the first downside target tomorrow if the day turns out to be bearish follow through. If the RUT moves up, it will first need to clear that 474 area again.

RUT Daily Chart:

RUT: Reverse Head and Shoulders Confirmed

2008-12-08T13:25:00.000-08:00

When the futures opened up Sunday night, the action grinded higher through the night to 476 before pulling back a bit prior to this mornings open.

The day had a few pops to the upside and closed near the highs at 481.38 which is 1.04 away from the 61.8% fib we talked about last Friday. This was today's target.

After 2 days of straight up action, we'll have to see if the uber bullishness continues tomorrow in the AM session or if it's going to need a pull back to muster the energy to go higher.

The neckline on the reverse head and shoulders has now been breached, so our 4 week target to the upside is set at 580. There will likely be some ugly pull backs along the way, but at this point if it holds 450 I'll remain short term bullish.

The price has now been above the 20MA for 2 days and the 8MA has crossed up over the 20MA which is the first time it's done that since early November -- Bullish.

Now that I've seen the reverse head and shoulders set up AND it's confirmed, my bias is much different then it was 2 days ago. Two days ago the price action was screaming bearish as it stayed below the down trending 20MA. Now that it's broken the 20MA and the downtrend line on the daily the momentum has shifted. Only the price will tell us how long this is going to last. For tomorrow I'd like to see it close above 50% of today's candle to keep me interested which would be 474ish. Interesting, there was a late day pull back to 474 that retraced very quickly back up to the 481 area.

RUT Daily Chart:

RUT: Intraday Reversal

2008-12-05T18:21:00.000-08:00

Despite the gloomy unemployment numbers the market found support and rallied hard starting at 7:45 (Pacific). From 9:00 on, the price never broke the 5m 20MA - a very strong rally.

In 5 hours that price action took the daily chart from a classic resistance at the downtrend line to a chart that now is confirming a higher low and may attempt Monday to put in a higher high. The price will need to close above 473.14 in order to put in this higher high. If it can do that, the next fib target on the upside would be 482.14. I mention that fib level as a target since the price seems to be latching on to those levels. On Friday the RUT closed just .05 from the 50% fib of 461.14 (461.09 was the close).

News wise, the economy is in the worst shape since the depression and most would argree that it's going to get much worse before it gets better. The important thing to remember is that the market doesn't care. The market will continue to trade technically because price is based on human behavior.

There is a reverse head and shoulders pattern (bullish) forming on the broad markets and if the neckline is broke this is a very high probability pattern to trade, despite it's going against the intermediate trend and going against the fact that the economy is in terrible condition. We'll continue to watch this pattern form.

Earlier this year the DOW Transports Sector Index formed a similar reverse head and shoulders pattern and it played out perfectly despite a slowing economy and rising oil prices -- those were external factors that logically went against any sort of rally, but the price moved up anyway. Remember that the market doesn't have to be logical, just watch what the price is doing. Eventually common sense prevails in pricing but usually after making some crazy gyrations.

RUT Daily Chart: Reverse Head and Shoulders Pattern forming

SPX: The Trend

2008-12-04T13:44:00.000-08:00

The SPX daily chart illustrates a great example of a trend working.

While everyone and their brother is trying to pick a bottom, the price action just continues to follow the down trend. Sometimes it's just better not to fight it, but to flow with the river... and this river is flowing down.

SPX Daily Chart:

RUT: Another 20MA Smack Down

2008-12-04T13:07:00.000-08:00

The RUT got bullish ballistic at the open and tried to open the the 460 door again three times but got sent packing each time. The afternoon session sold off hard and the RUT closed down 14.23 points to close at 440.20

It will get another chance to retest 450 to see if it can clear it.

My bias is neutral to down with the 20MA rejecting todays price action. Note that the price is now below both the 8MA and 20MA on the daily now.

RUT Daily Chart:

RVX Daily Chart:
The RVX action today created a doji on the daily chart giving us little hint for tomorrows probable direction. The RVX continues to hold above the 8MA and 20MA so it's still a hint bearish.

RVX: Reality Check

2008-12-03T15:18:00.000-08:00

The Russell 2000 Volatility Index ($RVX) continues to show that there is still a good amount of fear lurking in this index. Unlike the VIX which has broken below it's daily 20MA, the RVX at 71.85 is still above the 20MA on the daily.

For the last three and half weeks the RVX has been stuck in a range between 87.50 and 62.50. With last Monday's sell off it hit 77.50 for the day.

More than anything else, this range is reminding us that we are still at historically high volatility levels and large moves up and down should be expected. This will likely mean more chop on the daily charts.

Many continue to say that we are forming a bottom which is the same rhetoric they've been repeating erroneously for the last 4 months and have been wrong every time.

Rather then predicting bottoms or tops we may be better served by tightening our trading time frames and therefore having better control over our trade entries and exits. There is a reason the RVX is at 71.85, and that is because there is a high probability of large price fluctuations - Monday was a grim reminder of what high RVX is all about.

We continue to be in an intermediate downtrend and despite intermittent rallies we need to remember that the greater river is running downstream right now. That doesn't necessarily mean to be short right now, but if you look on the daily RUT charts it's clear that the RED candles are the biggest and most prevalent.

Reminder: Before this September the RVX ALL TIME High was a spike to 44.43, Last week we had a solid bodied candle with a range 65 to 77 - don't get to comfortable yet...

RVX Daily Chart:

RVX Weekly Chart: Still above 8MA (bearish)

RUT Daily Chart: Head Above Downtrend

2008-12-03T13:24:00.000-08:00

The RUT closed at 453.76 with enough candle body to poke it's head above the downtrend line on the daily chart. In theory this is bullish, but it also smacked the downtrending 20MA earlier in the day that created quick a smack down during lunch.

At this point we have an uptrending 8MA and a downtrending 20MA with the price trapped between the two, WAY above at 660 we have the downtrending 200MA. Technically the 200MA is an upside target, we'll just have to see how difficult of a task it is for the RUT price to rally in the current economic environment. It's very important to remember that price action never has to make sense, but we must trade the price action and not what we think will or should happen.

The RUT has only spent 3 days above the 20MA since October, and that was just before the huge leg down in November. This may or may not be the place were prices rally under the guise of a "Santa Claus" rally and everybody "buys in" because they feel everyone else is doing it. If this happens and prices can trend up to the 550 level it should create a good short set up in that area.

I continue to keep a bearish bias overall, but I am currently bullish short term on the daily charts. Right now, the 440 level will need to hold in order for me to remain bullish.

RUT Hourly: Heading Toward Congestion

2008-12-02T17:00:00.000-08:00

The RUT had a little relief bounce that you can see on the hourly chart. The price at 441 now is heading up into some technical congestion with the downtrending 20MA, the downtrend line on the daily chart and the horizontal price resistance in the 450 area.

The upward trendline on the hourly held very well in the afternoon session today, we'll see how it holds up tomorrow or if it even gets tested. The hourly put in a higher low and closed at the last minute with a higher high so there is a slight bullish bias based on this chart.

Because of the congestion, tomorrow may be another choppy day.

Wednesday Targets on Hourly Chart:
Upside: 20MA at 445.88 and 450 where downward trendline intersects horizontal resistance.

If the RUT should breakout strong tomorrow and clear 450 it may have a clear shot back up to last Friday's 470 high at which point it will hit the downtrending 200MA and likely resist.

RUT Hourly Chart:

RVX: Heading Back to the Highs

2008-12-01T13:54:00.000-08:00

The RVX closed up 12.72% at 77.81 and is stalking the 88.13 high.

Today's action seems to suggest that the fear is NOT leaving the market as some had hoped last week.

RVX Daily Chart:

RUT: The Mighty 20MA

2008-12-01T13:35:00.000-08:00

Last week we talked about the potential of the RUT moving up to the 460 area and finding some possible resistance where the downtrend line on the daily intersected with the downtrending 20MA.

Today, the smack-down happened at the open with the RUT losing 460 right out of the gate. From that point, the price never even broke the 8MA on the 15min charts -- very strong move down.

There were several points that could have held, like 450 and 430, but it seems there was some panic selling again causing the RUT to fall an amazing 56.07 points today.

With today's 11.85% slide, it will be interesting to see what happens tomorrow. Next support on the hourly chart is in the 405 range.

RUT Daily Chart: Resistance at 20MA

RUT: Magnet Fight 20MA vs. 200MA on the Hourly

2008-11-25T20:38:00.000-08:00

Today I'd like to focus on the hourly chart of the RUT.

Finally, it's starting to get interesting again. I was so tired of the market moving in the same damn direction with no pull backs to get in.

The little 3 day rally is providing some more opportunities for us now. The price is now sandwiched between the rising 20MA and the falling 200MA -- they are both magnets, but we'll soon see which one is going to win, and it will be one of them.

Because the RUT hasn't had a significant pull back in the last 3 sessions I'm going with the bias that the 20MA will get tested first, BUT the RUT has an army of bulltards that can punch it up 30 to 50 points on any given day despite having any real reason to do so. That's why I'd still give it a 50/50.

The price barely closed over the 38.2 today after tapping it yesterday, so the next upside fib target is going to be the 50% 460 which it could easily hit in a day. There is a downtrend line on the hourly it will have to punch through as well to get to 460, so look for that area to be some strong resistance.

On the daily charts we had 5 days down and now 3 days up -- what will tomorrow bring?

The daily candle body was small today which may be starting to suggest that the rally is weakening.

If the RUT falls tomorrow I'd be looking for a downside target of 426 then 415.

If the RUT moves up, the topside targets are 450 then 460 -- above 460 I start salivating and scaling into some puts. (that is not a suggestion)

The 200MA hourly is will likely be the wall that encourages the RUT to turn around and continue it's downward path. It's what the price does and not what I think it will do that will dictate my trading actions, but with this volatility and the fast movement it's important to start my pre-planning for what I'm going to do if it goes up to point A or what you're going to do if it goes down to point B because it can get there really quick in our current conditions.

RUT Hourly Chart:

SPX Hourly Chart:

RUT Levels

2008-11-24T21:29:00.000-08:00

The RUT rallied and came within .35 cents of the the 38.2 fib we targeted last week. This two day price action wiped out the nasty 2 days of selling last Wednesday and Thursday, but still leaves the RUT down in the basement.

On a longer term time frame the RUT could still technically retest the 2002-2003 lows in the 350 area so that is my personal low end target for the moment. Since the SPX and DOW bounced off their 2002/2003 lows it would make sense that the RUT can ride their coattails on a rally up, but from an economic standpoint it's the small caps that are likely to take the brunt of a depressed economy so I do believe the 350 could be retested if it gets nasty again. A break of the 405 level would open the gate for a possible 350 campaign.

As we mention time and time again, the RUT seems to constantly over do things to the upside and downside, so if it starts trending hang with it until the charts tell you it's over. Note the 6 day rally at the end of October and notice how the last two days of that rally had very small bodied candles near the resistance area. These candles were screaming that the move was losing steam and was itching for a pull back. I missed that observation and missed a great short opportunity, but I'll be watching much closer on this rally.

RUT Daily Chart:

SPX: 800 Support?

2008-11-22T09:20:00.000-08:00

The SPX closed at a nice even 800 on Friday and has started to create a bottoming tail on the monthly charts at the 2002 lows. Technically this now becomes a very important area to hold. With 3 straight months down I'm now looking to see if it can move up to cross and hold 840 which would be a 33% retrace of the current monthly bar. Notice that the November monthly is larger then Sept and Oct bars. Historically this is indicative of exhaustion from sellers and can signal the start of a relieve rally once 33% of the November bar is retraced. This is likely area some will take a stab at some longs swing trades and a good area from their stop would be 750.

I can feel the desperation in the markets for any reason to rally as we saw on Friday afternoon with some political appointment announcements. This is at the same time Citi is still on it's deathbed along with the auto industry. I am still bearish the market, but there is likely some money to be made in the quick relieve rallies we're likely to see over the next few days and weeks.

I'll be keeping my eye on the VIX as well as the key resistance areas on the price charts. The moves up are likely to be just as tricky as the moves down where levels of support and resistance may work only 50% of the time. We certainly saw key support areas ignored on the way down, so I am preparing for the same thing on the way up. The market is best in emotional times like this at creating surprises.

SPX Monthly Chart:

RUT: Short Term Upside Target

2008-11-22T07:40:00.000-08:00

With the RUT creating "another" bottoming tail after an extended move down on the daily charts, the probabilities for short term bounce are present. The short term upside target is 440 where the 8MA and 38.2 fib intersect. The upside target above that be 460 and then 490. There should be some resistance in the 470 area at the downward trendline. The 20MA is currently running parallel to the downward trendline.

RUT Daily Chart:

RUT: What if we Bounce?

2008-11-20T17:38:00.000-08:00

Below is an hourly chart showing the first 2 fib targets should the RUT start a bounce tomorrow. The first target is 423 and the second is 447.

RUT Hourly Chart: